SAP: The Outcome of a Policy of Capitulation

From Haiti Info,
Vol. 3, no. 11, 11 February 1995

In a full and complete capitulation before the U.S. and other powerful countries who run the all-powerful Washington multilateral banks, President Jean-Bertrand Aristide and his government have signed the country up as the most recent passenger on the sinking ship of structural adjustment.

The devaluation of Mexico's peso, riots in Brazil and other countries, numerous studies documenting the disastrous effects on the health and welfare of populations and growing coalitions of non-governmental organizations lobbying against Structural Adjustment Programs (SAPs) have had little effect on the zeal of Haiti's planners and politicians, including the president.

Basics of Haiti's Program

The Jan. 31 agreement in Paris - where Haiti was pledged US$1.2 billion dollars in aid over the next 18 months and in return agreed to follow IMF and WB advice to adjust its economy - comes as little surprise. It was merely a formalization of an August, 1994, meeting where members of Aristide's government verbally agreed to such neoliberal reforms as:

• the privatization of publicly owned industries (demagogically called democratization)
• the reduction of all tariffs to zero
• the reduction of the public payroll by one half (about 22,000 jobs cut), and
• micro-management of social services (a shifting away from state- to private- and/or non-governmental- provided services).

Those and other measures were outlined last August [see Haiti Info v.2, #26], but Prime Minister Smarck Michel elaborated them further in an obsequious Jan. 24, 1995, document presented to the multilateral (WB, IMF, etc.) and bilateral (U.S., Canada, France and others) donors in Paris where he begged for aid as he practically apologized for the country's errors of the past. (Actually, at least half of the aid are loans, raising Haiti's foreign debt by over 50 percent to almost US$1.5 billon dollars. Most will not even be disbursed until 1996.)

In the 16-page paper, not distributed to the press, Michel spoke of the lessons learned over these three long years:

We must begin from the undeniable observation that the social, economic and political situation of Haiti has radically changed since September, 1991, and although the basic objectives (democracy, justice, state of law) of the mandate of the Dec. 16, 1990, government have not changed, one must negotiate them another way.

In other words, the meager reforms the Aristide government sought or spoke of seeking - a raise in minimum wage, land reform, support for some national production, etc. - are no longer feasible because the situation... has radically changed.

The strategy of economic development adopted is a strategy based on export-led growth, said Michel in the paper. The market should play a fundamental role in the allocation of resources... the dynamism of a competitive private sector will favor the growth necessary to pull the most deprived people out of their infrahuman misery.

Through reforms, Michel promised to improve the efficiency of the economy and free up growth.

The last stage will consist of... arriving at a zero tariff, except for some products which will benefit from temporary exemptions, Michel said.

Finally, for the first time, the government admitted openly its full embrace of a SAP:

The government will obtain the support of the World Bank and the IMF for the preparation of a Program of Structural Adjustment, whose principal objectives are: to raise the growth rate of the real GDP to six percent per year during the period 1996-1998; to reinforce the balance of payments, and to increase the mobilization of local resources.

The SAP Menu and Its Record

If this discourse sounds familiar, it is because SAPs are already being applied in about 80 countries, effecting 80 percent of the planet's population, with the consequences all too predictable.

For 30 years, experts have been talking about development, but those in the so-called Third World know a different reality. The gap between the developed industrialized capitalist countries and the dependent countries is wider than ever. Even the U.N., which, under U.S. leadership identified a new development model and goal every decade since the sixties, has been forced to admit that each one, and indeed, the past 30 years, have been a failure.

For three decades, the Third World has been overwhelmed by a flood of sophisticated language, projects, programs and experts of all types and ideological persuasions. Today they are pushing the latest development fad, the SAP, or as Zimbabweans call it: Suffering for African People.

In a recent article, Economics Professor Michel Chossudovsky of the University of Ottawa denounced SAPs point-by-point, each time exactly rendering what Haiti is experiencing. He even described what was called the Paris plan (released in August, 1994).

SAP countries are obliged to come up with a national policy framework paper, actually written under close supervision of WB and IMF economists. Although the stationary is different, the guidelines and objectives are the same: wrench open the economy, destroy the national industries, shrink the states, float the currencies, resume debt payments, reorient agriculture from self- sufficiency to export crops (to earn hard currency for debt payments), create cheap labor pools and markets for industrialized countries' goods.

While adopted in the name of 'democracy' and 'governance,' the SAP requires the strengthening of the internal security apparatus: political repression - with the collusion of Third World elites - supports a parallel process of 'economic repression,' explained the professor.

So-called 'governance' and the holding of multi-party elections are added conditions imposed by the donors and creditors, yet the very nature of the reforms precludes genuine democratization... [They] promote[s] bogus institutions and a fake parliamentary democracy, which in turn supports the process of economic restructuring... under the guidance of the Washington-based financial institutions. (The U.S. dominates both with almost 20 percent of the votes. Together, the world's ten richest industrialized countries control over half the votes.)

[A SAP] increasingly denies individual... countries the possibility of building a national economy [and] the internationalization of economic policy transforms countries into open economic territories and national economies into 'reserves' of cheap labor and natural resources.

The Twin Sisters

John Maynard Keynes, who attended the meetings at Bretton Woods in 1944 which established the banks, dubbed them the twin sisters. (Actually, the World Bank groups together three agencies - the International Bank for Reconstrution and Development [IBRD] , founded in 1944, and the International Finance Corporation and the International Development Association, founded later). The IBRD and IMF emerged as World War II wound to a close and were the result of the new relations of strength in the world arena, where the U.S. was becoming the number one power in the West. From the beginning, they were contrived to help establish and promote U.S. imperialism.

The WB, traditionally headed by a U.S. citizen appointed by the U.S. president, has the largest portfolio and lends money to governments and also to the private sector. Payback periods vary between 20 and 40 years. WB advisors work in most ministries of adjusting countries. The IMF, traditionally headed by a European, was established to oversee exchange rates and lends money for balance-of-payment purposes. In SAP countries, the IMF has virtual control over the exchange rates and is involved budgeting and financial planning.

After the Vietnam War, the WB was floundering due to lack of repayments and U.N. criticism, and had to choose between writing down the debt or increasing its portfolio. Bank President (and former U.S. Secretary of Defense) Robert MacNamara gave it a new lease on life, announcing it was now the benevolent patron of the poor and increasing lending from US$953 million in 1968 to US$12.4 billion in 1981.

Most, if not all, WB and IMF money has ended up back in the rich countries. In 1992, the WB divisions that lend to poor countries dispersed US$16.4 billion. The grantees sent back US$10.2 billion in repayments and also spent US$6.5 billion in industrialized countries for goods and services, meaning they suffered a net loss of almost US$200 million.

Mexico and other Forebodings

SAPs produce predictable results. On paper, growth is up. Latin America saw 3.2 percent economic growth in 1993 and 3.7 percent in 1994, and inflation (for the entire region except Brazil) fell to 16 percent, down from 19 percent in 1993. But unemployment also rose in every single country except Peru, and according to the U.N. and other agencies, 200 million Latin Americans - 40 percent of the population - lives in poverty. Statistics from around the world give concrete examples of what kinds of effects Haiti will feel:

• In Ghana, long touted as an example of successful adjustment, wages have fallen and malnutrition, illiteracy and illness among the poor have risen. Foreign debt went from US$1.4 billion in 1983 to US$4 billion in 1992.
• Working class wages in Chile have fallen 40 percent in real terms since the 1970s and debt has quadrupled.
• In the Philippines, under adjustment since 1980, 75 percent of rural households live in abject poverty. Forty-eight percent of the population is under- or unemployed. Each year, 40 percent of the budget and 31 percent of export earnings go to debt payments.

There are thousands of other statistics which could be cited, but a glance at Mexico's current crisis provides a more current and global picture. Last December the artificially propped up peso crashed. That and the Jan. 1, 1994, Zapatista uprising, an expression of the exploitation and discontent of the rural poor, were just the tip of an iceberg.

Mexico's adjustment, financed with over US$1 billion in WB loans, consisted of lowered or eliminated tariffs, export- agriculture orientation, high interest rates to attract investment, and a host of other typical measures. The results:

• An enormous trade deficit, US$23 billion in 1993, as many domestic industries and agricultural producers, especially small and middle-sized, failed. Current estimates put the trade deficit at US$30 billion.
• Between 1980 and 1988, total rural credit was cut by one third, with the remaining credit too expensive for most small farmers.
• A steep increase in the concentration of wealth. The richest 20 percent of the population's income rose from 48.4 to 54.2 percent between 1984 and 1992, while the poorest 20 percent's share fell from 5 to 4.3 percent.
• Over the past five years, the number of billionaires in Mexico rose from two to 24. The assets of the richest individual total more than the combined annual income of the poorest 17 million people.
• Between December 1987 and May 1994, the cost of basic goods rose nearly three times as much as the minimum wage (US$4.42 per day).
• Between 1980 and 1992, as real incomes fell, infant deaths from malnutrition almost tripled.

Carlos Heredia, a former finance ministry employee who just finished a report on Mexico's SAP with two non-governmental organizations, said after the devaluation:

The current economic crisis highlights the failure of Mexico's structural adjustment program to bring economic stability or to close the ever-widening gap between rich and poor. The current crisis has nothing to do with human error, as is now being alleged. It's the collapse of an economic model.

Heredia is not alone in his assessment. On Feb. 2, U.S. Treasury Secretary Robert E. Rupin said:

Mexico's near-death experience... illustrates the dangers of that free-market model. Opening up to foreign trade and investment helped the Mexican economy to grow at a much faster rate than otherwise. But it was a Faustian bargain, leaving the economy perilously dependent on foreign capital that could vanish even faster than it came.

Growing Protests and Rejection

Despite the overwhelming power of the multilateral institutions and their U.S. backers, people and organizations throughout the Third World are protesting SAPs.

In December, Brazil privatized the airplane company Empresa Brasilena de Aeronautica (Embraer). Four protestors were arrested and a dozen injured when 700 police attacked workers and students after rocks were thrown. The shares were sold for 154.16 million reales (181.4 million dollars), only 0.3 percent higher than the minimum acceptable price.

In 1990, Moroccans held a general strike to protest IMF reforms. In Nigeria the year before, student riots against the SAP forced the military regime to close six universities. That same year in Venezuela, IMF adjustment led to a 200 percent rise in the price of bread. Tousands rioted. Soldiers stormed the slums, killing at least 200 people and perhaps as many as one thousand.

U.S.-based organizations and institutions have formed the 50 Years is Enough campaign to fight the WB and IMF-style development. With books, brochures, articles and lobbying campaigns, they are pressing for the end of the current SAPs, debt forgiveness and a number of reforms to the sisters.

In 1991, the Economic Commission for Africa published the African Alternative Framework to Structural Adjustment which called for a progressive alternative to SAPs that would answer national economic and social needs through national production, regional trading and other measures. Last year the South-South North Network in Southern Africa, a group of 14 groups, demanded the complete cessation of SAPs and a democratization of the two institutions.

Last month, after a two-week preparatory meeting at the U.N. and despite overwhelming pressure from the U.S. and European countries, ambassadors preparing for the World Summit for Social Development (to be held in Copenhagen in March) finally agreed upon language which admitted SAPs have negative effects and called for their study and reform. Although the statements were significantly watered down from what some delegates and scores of non-governmental organizations demanded, the ambassadors are admitting there is a problem with the current way SAPs are imposed.

Despite the doubts, the overwhelmingly convincing statistics, the protests and resulting murders, the increasingly organized opposition to SAPs and their enforcers and the skepticism even coming from the likes of Rubin and the New York Times, the Haitian government has rushed to sign up for what will certainly not be Aristide's old promise of an improvement from misery to poverty with dignity.

Four years ago, 67 percent of the population - the majority of them miserable by Aristide's own definition - voted resoundingly against neoliberalism and its champion, former World Bank employee and, more recently, avid member of the coup d'etat regime Marc L. Bazin. Today, as a result of a complete resignation before the U.S., the WB, the IMF and the experts of the developed countries, they are being rewarded with an SAP so zealous, it would make the most liberal neoliberal blush.

SOURCES:

Chossudovsky.

Global impoverishment and the IMF-World Bank economic medicine, Third World Resurgence, No. 49 and other articles in the same issue.

Kevin Danaher, editor

50 Years is Enough, The Case against the WB and the IMF. South End Press, 1994.

Heredia and Mary E. Purcell

Mexican Society: A Grassroots View Of World Bank Economic Adjustment Policies, Equipo PUEBLO. Mexico.

Numerous press releases and publications of The Development GAP, Washington, D.C., and 50 Years is Enough campaign.